For a private company on the model articles, the directors decide directors’ pay under article 19, but a director cannot normally count in the quorum or vote on their own pay because of the conflict rules in article 14. Members must approve some things whatever the articles say: service contracts guaranteeing more than two years’ employment (section 188 of the Companies Act 2006), payments for loss of office (section 217) and, for quoted companies, the remuneration policy (section 439A). Companies still on the 1985 Table A have a different starting point, because regulation 82 gives directors’ fees to the members to decide.

What do the model articles say about directors’ pay?

Article 19 of the model articles for private companies, in Schedule 1 to the Companies (Model Articles) Regulations 2008, says:

  • directors may undertake any services for the company that the directors decide;
  • directors are entitled to such remuneration as the directors determine, both for their services as directors and for any other service they undertake for the company;
  • subject to the articles, remuneration may take any form and may include pension, allowance, gratuity, death, sickness or disability arrangements;
  • unless the directors decide otherwise, remuneration accrues from day to day.

Article 20 separately allows the company to pay reasonable expenses that directors properly incur in attending meetings or otherwise in carrying out their responsibilities. The starting point is therefore that the board, not the shareholders, sets pay. But that power has to be exercised through the board’s normal decision making rules, and that is where most owner managed companies run into difficulty.

Can a director vote on their own pay?

Usually not. Article 14(1) says that where a proposed decision concerns an actual or proposed transaction or arrangement with the company in which a director is interested, that director is not counted as participating for quorum or voting purposes. A director’s own salary, bonus or contract is an arrangement in which they are plainly interested. Article 14(3) lifts the restriction in three cases:

  • the company by ordinary resolution disapplies the restriction;
  • the interest cannot reasonably be regarded as likely to give rise to a conflict of interest; or
  • the conflict arises from a permitted cause, which under article 14(4)(c) includes arrangements making benefits available to employees and directors that do not provide special benefits for directors.

The quorum rule in article 11(2) is that it must never be less than two, and unless otherwise fixed it is two. In a two director company where each director’s pay is on the table, the interested director drops out and the board is left without a quorum. The clean solution is for the shareholders to approve the pay, or to disapply article 14 for that decision, by ordinary resolution, which under section 282 is a simple majority and in a private company can be a written resolution under section 288. A sole director is different: under article 7(2), where the company has only one director and the articles do not require more, that director may take decisions without regard to the directors’ decision making provisions.

The statutory duty to declare interests is less of an obstacle. Section 177(6)(c) says a director need not declare an interest in a proposed transaction to the extent that it concerns terms of their service contract that have been or are to be considered by a meeting of the directors or a committee appointed for the purpose. See declaring interests in transactions and directors’ conflicts of interest.

What if the company still uses Table A?

The 2008 model articles came into force on 1 October 2009. Many older companies have articles based on Table A in the Companies (Tables A to F) Regulations 1985, which splits the decision:

  • regulation 82 says directors are entitled to such remuneration as the company may by ordinary resolution determine, so fees for acting as a director are a members’ decision;
  • regulation 84 allows the directors to appoint one of their number to an executive office or employment and to remunerate that director for those services as they think fit.

Before setting pay, check which articles actually apply, including any amendments filed at Companies House. Bespoke articles commonly override both sets of defaults.

When must the members approve, whatever the articles say?

The Companies Act 2006 reserves certain pay related decisions to members:

  • Long service contracts. Under section 188 a company may not agree to a provision under which a director’s guaranteed term of employment is, or may be, longer than two years unless it is approved by resolution of the members. A memorandum of the proposed contract must be sent with a written resolution, or be available at the registered office for at least 15 days before the meeting and at the meeting. See directors’ service contracts.
  • Payments for loss of office. Section 217 says a company may not make a payment for loss of office to a director unless members approve it, with a memorandum of particulars including the amount. Section 220 exempts payments made in good faith in discharge of an existing legal obligation, as damages for breach of one, in settlement of a claim arising from termination, or as pension for past services, and section 221 exempts payments totalling no more than £200.
  • Loans to directors also need member approval under separate rules. See loans to directors.

Approval is not needed under sections 188 or 217 from the members of a company that is a wholly owned subsidiary of another body corporate. Shareholders also have a general backstop: article 4 of the private company model articles lets them direct the directors by special resolution to take, or refrain from taking, specified action.

How is it different for quoted companies?

Quoted companies have a binding regime. Section 439A requires an ordinary resolution approving the directors’ remuneration policy at least every three financial years, and section 226B prohibits a remuneration payment to a director unless it is consistent with the approved policy or approved by a resolution of members. Separately, section 439 requires an annual resolution approving the directors’ remuneration report other than the policy, although section 439(5) says no entitlement to remuneration is conditional on that resolution passing.

The FRC’s UK Corporate Governance Code 2024 adds, at Principle Q, that no director should be involved in deciding their own remuneration outcome. Provision 33 gives a remuneration committee of independent non executives delegated responsibility for executive pay, and Provision 34 says non executive pay should be set in accordance with the articles or by the board. See non executive directors.

When is pay treated as received for tax?

The timing of the decision has tax consequences. Section 18 of the Income Tax (Earnings and Pensions) Act 2003 treats a director’s money earnings as received at the earliest of payment, entitlement to payment, the time sums are credited in the company’s accounts or records (even if they cannot be drawn), the end of the period if the amount was determined by then, or the time the amount is determined if that is after the period ends. PAYE follows that date, so voting a bonus or crediting it to a director’s loan account triggers the tax point even if no cash moves. See director’s loan accounts.

For corporation tax, section 1288 of the Corporation Tax Act 2009 says remuneration charged in the accounts but not paid within nine months after the end of the period of account is deductible only in the period in which it is paid. See salary versus dividends for how pay compares with dividends.

How might this work in practice?

Illustration only. Two directors each own half the shares of a company using unamended model articles. They want salaries for the coming year and a bonus for the year ended 31 March 2026. Because each is interested in their own pay, a board meeting cannot form a quorum on those items. They circulate an ordinary written resolution approving both salaries and a £20,000 bonus each, and sign it as shareholders. The bonus is determined after the year end, so for PAYE it is received when determined. It is accrued in the 2026 accounts, and it will only be deductible for that period if it is paid by 31 December 2026, nine months after the year end.

What mistakes do companies make?

  • Assuming the board can set pay when the articles are Table A and regulation 82 gives directors’ fees to the members.
  • Recording a board decision on pay where the only directors present were interested, leaving no valid quorum.
  • Agreeing notice periods or fixed terms over two years without a section 188 resolution, which under section 189 makes the provision void to the extent of the contravention and lets the company end the contract on reasonable notice.
  • Paying a negotiated exit sum without checking whether section 217 approval or a section 220 exception applies.
  • Crediting bonuses to the loan account without operating PAYE on the date they are treated as received.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.